Canara Bank vs Kaybee Safal (India) Ltd.

Ranjit Singh, J

The Tribunal below had allowed the S.A. filed by the respondents while holding that the action of the appellant Bank is not in accordance with law and thus had set aside the action taken under Sections 13(2) and 13(4) of the SARFAESI Act. Aggrieved against the same, the Bank has filed the present Appeal. The respondent had availed credit facilities on 14th March, 2001, 7th May, 2001, 13th September, 2001 and 26th July, 2001 in the nature of open cash credit limit, ad hoc open cash credit and term loan. To secure these loans, first charge on the piece of land and a parcel of land measuring 16 Kanals was created while second charge created was of machineries, stocks of raw material, semi-finished goods, finished goods lying in the office premises at Hisar, on book debts, computers and Company's car etc. Somewhere in between the months of March and September, 2001 the respondent had availed various facilities from the appellant Bank in lieu of second charge over the entire land and building situated at Hisar measuring 12 Kanals 18 Marlas. HSIDC had permitted the Company to create second charge in favour of the Bank.

When the respondent failed to maintain the financial discipline, the account of the respondent Company was classified as NPA in November, 2001. Subsequently in the year 2005, the Company went before the BIFR as well. As the time of deciding this SA, the Petition before the BIFR was also pending.

The Company has submitted One Time Settlement proposal on 29th October, 2007. The outstanding dues were Rs. 4.25 crores, Receipt of this proposal was acknowledged and the respondent Company was intimated that the same has been sent with recommendation to the competent authority for approval. No positive communication thereafter followed. It was pleaded that the offer of Rs. 4.25 crores was higher than the value of the secured assets.

As already noticed, in order to secure the loans, the respondent Company had created first charge on the land measuring 16 Kanals situated at 7th KM stone, Bagla Road Hisar (Haryana). The respondent Company had also created second charge on 12 Kanals 18 Marlas of land situated at 7th KM stone, Bagla Road, Hisar. This was in addition to the hypothecation of machineries purchased out of Bank finance such as 250 KVA transformer, machine of cleaning, sorting and milling, various electrical goods besides hypothecated book debts, car to the Bank.

When the Company failed to make repayment the appellant Bank filed the Original Application before the Tribunal below, which was decided on 6th March, 2003. The appellant Bank thereafter initiated action under the SARFAESI Act and issued demand notice on 12th December, 2008. The respondent Company submitted reply on 10th February, 2009, which was duly considered and gave reply dated 16th February, 2009, in response. Still, the respondent failed and neglected to pay the amount. Thus, the Bank was left which no alternative but to issue possession notice dated 27th February, 2009. It is then that the respondent filed S.A. on 10th April, 2009.

The Bank appeared in response to the notice and filed Written Statement. One of the issues raised by the Company was that the property measuring 12 Kanals 18 Marlas mortgaged with the Bank could not be sold in auction under the SARFAESI proceedings as the Bank had only second charge on this property and it had not taken consent of the first charge holder. Plea was that the Bank could not sell the land measuring 16 Kanals over which it had first charge as this property was agricultural land.

The Tribunal below has noticed that he controversy in this case was only with regard to usage of the rear portion of the land. The Tribunal appointed a Local Commissioner, who came back with the report that there was standing crop on the land in the rear portion in this regard the Local Commissioner had annexed certain photographs as well. The Tribunal below relied upon this report by observing that it could not be ignored and had held that the rear portion of the land measuring 16 Kanals over which the Bank had exclusive charge was exempt under Section 13(1) of the SARFAESI Act as it was being used for agricultural purpose.

Grievance of the Bank is that the Tribunal below had not given any finding in respect of the land measuring 12 Kanals 18 Marlas which was also mortgaged except for stating that the Bank had second charge over the said portion. The Bank is also aggrieved against the finding returned by the Tribunal that the land measuring 16 Kunals over which the Bank had first charge is used for agricultural purpose. As per the Bank, the total land with the Company measuring 28 Kanals 18 Marlas is a single piece of land which is bounded by boundary wall with one entrance from the front portion. As per the Bank, the finding returned by the Tribunal below is based merely on account of the fact that there was standing crop in rear portion of the land measuring 16 kanals. This finding is statedly returned without taking into account the revenue document like khasra girdawari where this land is not described as being used for agricultural purpose.

To substantiate his plea, the Counsel for the appellant Bank has invited may attention to the revenue record which was placed before the Tribunal below as well. In the jamabandi for the year 2006-2007 the land in question is described as gair-mumkin maida mill. The Counsel with the help of map, which is on record, has explained that in front portion of this total land is building having a factory. Though the other portion is used for the purpose subservient to the mill but the Tribunal below ignored the revenue entries while relying on the report of the Local Commissioner. As per the Counsel, the respondent herein had sown jawar crop over this portion of the land just to make out a case that this was being used for agricultural purpose.

A clear case that will emerge from the pleadings is that the liability of the respondent has been determined in the OA and to recover the amount, the Bank had initiated proceedings under the SARFAESI Act. These proceedings have been brought to naught by the Tribunal below on the ground that the interest created for security is land which is used for agricultural purpose. The Counsel for the appellant seems to be justified in stating that the Tribunal below was also required to consider the aspect of mortgage of the remaining portion of the land though the Bank may have had the second charge over this land. The right of the Bank to proceed against that portion of the land over which it had second charge could not have been ignored in this manner. Even if the Bank had second charge over the property it was entitled to recover its dues may be after satisfying the amount due towards the first charge holder. In any case, the Bank had first charge over the remaining portion of the land. The action of the Tribunal below in ignoring the revenue entries completely and placing implicit reliance on the report of the Local Commissioner cannot be justified.

The record would show that total amount recoverable from the respondent is Rs. 22,59,12,639/- with further interest from 10th December, 2008. The dues of HSIDC are only to the tune of Rs. 1.03 crores. I find that the Tribunal below was not justified in interfering with this recovery on such a flimsy plea by relying on the report of the Local Commissioner. It may not be out of place to mention here that both appellant as well as the respondent did make an attempt to lead additional documents on record. This prayer, however, was declined. Even as per law the existing material, the action of the Tribunal below in ignoring the entries made in the revenue record and relying on the report of the Local Commissioner cannot be held justified. The Tribunal below, in my view, has not considered all the issues arising in this case properly. Accordingly, the impugned order passed by the Tribunal below cannot be sustained and is set aside. The case is remanded back to the Tribunal below to reconsider the issue on the basis of evidence on record especially the issue whether the land mortgaged with the Bank is being used for agricultural purpose of not. The Tribunal below will consider the value to be attached to the revenue record vis-à-vis any observation which may have been recorded in the report of the Local Commissioner. The Tribunal below will appreciate that chunk of land of 16 Kanals forming part of Mill cannot be put to much use for agricultural purpose once the part of the same land is being used for running a factory.

The Appeal is accordingly allowed. The parties through their Counsel are directed to appear before the Tribunal below on 27th July, 2015 for reconsidering the prayer made in the S.A. in accordance with law.